Crowdfunding and microlending: a comparative study

Everyone, at some point or another, has gone through financial difficulties. This could be for various reasons, be it expensive medical treatment of a family member, putting your children through school, running a home with no source of income, or your family business suffering a loss. At such times people need help. Financial help. The first thought that would come to mind is to get a loan. But we have to be realistic and ask ourselves these questions before hastily making the decision to run to a bank for a loan. Do you always get a loan when you approach a bank? Are the interest rates suitable for you, or are they too high? What personal assets are you going to have to put at stake, to get the loan? How many years will you have to spend before you’re able to repay the loan?

It’s understandable, especially in severe cases of financial trouble such as medical treatment, that irrespective of the rationality, you sometimes just want to take the leap and then see what happens. But eventually people end up drowning in debt. This is why alternative fundraising is picking up at a rampant pace in India. In the scenario of a crowdfunding India, you simply raise money by making an appeal to people through a campaign on a crowdfunding India website such as Impact Guru. If your cause connects with the community of donors out there, they’ll contribute through a quick online transfer. In another scenario, microlending too, is gaining popularity, wherein you approach a ‘lender’ who will give out a small loan for no interest whatsoever.

Now both concepts are interesting, and equally noble, in that they are aimed at helping people who’re facing extreme financial troubles. But how does one decide which alternative fundraising method to opt for? Well, there’s no right or wrong answer. It all depends on what you’re raising money for. To give you some plain facts, crowdfunding has been incredibly popular in India among people who need urgent money to get expensive medical treatments, and also among NGOs and nonprofits. Microlending on the other hand, is a concept that’s more popular for people with small businesses, or entrepreneurs from low income groups, who need a financial kickstart. Another major difference is that crowdfunding is essentially collecting donations, while microlending is an interest free loan. A huge difference is for the people who are shelling out money. When you give to a crowdfunding India campaign, you only shell out a small sum of money which become part of a large pool of donations, so you don’t actually feel the pinch of parting with your money, while yet still enjoying the feeling of having contributed to the betterment of someone’s life. Microlending can be quite risky for the lender because he/she is actually expecting to get repaid. But say you borrow money for a new business and it fails; you’re unable to repay the money, then that’s a risk for the lender to think about.  

Another aspect to consider when deciding whether to opt for crowdfunding or micro-lending is the amount of money you need to raise. It might not be easy, nor ethical to keep going for for more money to a micro-lender, in a situation where you need more These limitations don’t exist for crowdfunding, because even if your raise more than your target, you still get to keep the excess funds. It is important however, to convey that not all crowdfunding campaigns are successful. The success for your campaign largely depends on the platform you choose for your cause, and the effort you put into creating a powerful and persuasive campaign, inclusive of social media efforts to reach out to larger audiences.

We’ve given you all the simple facts – it’s up to you to make your decision now!

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